Cal Am Agrees to Eight Conditions on Desal Project

It looks like California American Water is about to gain a tidal wave of support for its proposed Monterey Peninsula Water Supply Project, now that it’s agreed to most of the conditions stipulated by the Monterey Peninsula Regional Water Authority.

The MPRWA, Cal Am and 14 other stakeholders—including environmental, water-watchdog and business groups, along with various public agencies—have inked two settlement agreements meant to smooth the path forward for the Water Supply Project.

Both were submitted to the California Public Utilities Commission today.

One settlement agreement lays out details including the financing, electricity rates, governance and source water for the plant.

In a letter to MPRWA President and Monterey Mayor Chuck Della Sala, Cal Am President Robert MacLean summarizes the key points in the main agreement:

1. Cal Am will accept a big chunk of public funds—at least $100 million—toward the $400-million Water Supply Project. The lower interest rates offered by a public contribution are expected to drive down both the cost of the product water and Cal Am’s profit potential.

2. Cal Am is already working to secure lower electricity rates for the energy-intensive project, along the lines of 8-9 cents per kilowatt-hour.

3. Cal Am agrees to reduce its “Surcharge 2,” a line item to be added to ratepayers’ bills, from $103 million to $71.5 million and use that revenue in a way to minimize ratepayer risk. About half will be put toward the planned pipeline, which officials say will be useful even if the deal plant is not built, and the other half toward desal facilities only after all the necessary permits have been issued.

4. Cal Am has applied for a Clean Water State Revolving Fund loan for the Water Supply Project. If it is not deemed eligible on its own, Cal Am agrees to work with a public agency to seek a State Revolving Fund loan.

5. In March Cal Am agreed to a governance committee to provide public oversight of the project.

6. Cal Am will form a science-based technical working group to look into concerns its desal intake wells could draw fresh water from the Salinas Valley Groundwater Basin, which is prohibited under county law. It will also test soil borings, continue to coordinate test well permitting with various regulatory agencies as needed and proceed with test wells as quickly as possible.

7. Cal Am will review three studies of subsurface intake in the Seaside Basin as a contingency in case its proposed intake wells are not legally or technically feasible.

8. Cal Am will address questions about sea-level rise and coastal erosion with respect to its proposed slant wells on the coast.

A second settlement specifies the plant’s sizing: 9.6 million gallons per day without the groundwater replenishment project (GWR), 6.9 million gallons per day with 3,000 acre-feet per year from the GWR, and 6.4 million gallons per day with 3,500 acre-feet per year from the GWR. (The GWR is an embattled proposal by the Monterey Regional Water Pollution Control Agency and the Monterey Peninsula Water Management District to recycle wastewater.)

In related water news, the PUC denied the county and Marina Coast Water District’s request for a rehearing of an earlier PUC ruling about the county ordinance requiring public ownership of desalination plants.

In a December settlement with Cal Am, the county agreed to make an exception to its ordinance for Cal Am’s Water Supply Project. But it’s unclear whether the PUC’s October 2012 ruling that its authority to regulate Cal Am pre-empts the county law would open the door to other privately owned and operated desal plants in Monterey County.

The county has 30 days to appeal the PUC’s decision to the state Supreme Court.  

The public ownership ordinance, if enforceable on non-Cal Am desal plants, could present a serious hurdle for the proposed People’s Project and DeepWater Desal, both in Moss Landing. Water watchdog groups Citizens for Public Water and WaterPlus are formally protesting the county/Cal Am settlement before the PUC, arguing it’s unfair for the county to selectively enforce the ordinance.